Government Filings: The Basics
Dear Erin,
You and I have talked about this before, and I think all your paperwork is in order. Nevertheless, I was reminded of the seemingly unendless list of government forms and registrations required when setting up a nonprofit. I’m working on launching that nonprofit I’ve been telling you about with Jenny, DeRondal and Molly and I volunteered to do all the filings. Gosh, so many filings.
Thought it wouldn’t hurt to make a list.
INCORPORATION: A nonprofit is a corporation, just not a for-profit one. It cannot be organized as anything else (as partnership or LLC, for example) since other types of business entities (legal structures) have specific owners. A for-profit corporation is owned by shareholders. A not-for-profit corporation is organized for the public good - therefore, no owners; just a board of directors governing it.
Corporations are set up (“incorporated”) at the state level, usually through the Secretary of State’s office. Therefore STEP ONE is to file your articles of incorporation with the state in which you are setting up the nonprofit. Note that you will need the names and addresses of your board members and your registered agent (the person in charge of paperwork) as well as address, purpose and by-laws. Typically, you need to send in a fee. Once you are approved by the state, you will have your official “incorporation date” (the date they approved it, not the day you mailed it) and your Articles of Incorporation (sometimes called “Certificate of Authority”).
FEDERAL EMPLOYEE IDENTIFICATION NUMBER: Armed with your Articles of Incorporation, which will include a file number assigned by the state, go ahead and get your FEIN. This is issued by the Social Security Administration and is essentially your corporation’s “social security number.” Do this online; the number is assigned in minutes and the FEIN statement is emailed to you.
It might seem like you don’t have to do this if you don’t yet have employees. Don’t let that fool you. You can’t move forward without the EIN (aka FEIN).
IRS TAX DETERMINATION: You may be recognized by your state as a nonprofit, but now you have to register with the feds, specifically the IRS. The IRS gets to decide whether your organization meets the criteria of federally-recognized nonprofit status and, if so, under which section under the law. In most cases, you are going for 501(c)(3) status, which means you have a charitable purpose and donors may be able to deduct the value of their donations on their personal income taxes (note: it’s their federal income taxes, which is why the IRS has final say-so). You also can apply for grants once you have 501(c)(3) status. To get it, you need to fill out either a 1023 form or a 1023EZ form and submit to the IRS (again with a fee) in order to be considered for approval as an official public charity. 1023 is long and turnaround time is lengthy - months. 1023EZ is short and quick, but you cannot use it unless you expect to have less than $50,000 in revenue in each of your first three years of operation.
Once approved, you’ll get a letter from the IRS stating as much. This letter comes in the mail and is absolute gold. Don’t lose it; scan it immediately. This is called your Tax Determination Letter or sometimes your Exemption Letter.
ATTORNEY GENERAL REGISTRATION: So…the Secretary of State in most states governs the set-up of businesses; but the state’s Attorney General governs the donations. In most states, you have to register with the Attorney General before you can start accepting charitable donations from residents in the state. This is meant to protect donors from scams or unscrupulous nonprofits. Technically you are supposed to register separately in each state you are soliciting donations. In Illinois, the registration department is called the Charitable Trust Bureau in the AG’s office. I think you know more than me about the California equivalent.
I was just registering my new nonprofit and realized I need all of the foregoing documents to send in as attachments to the AG registration, as well as our by-laws and a financial statement. Eeep. And one of the pages needs to be notarized. Ugh. So. Many. Forms.
SALES TAX EXEMPTION: Don’t confuse “donors get a write-off” with “I don’t pay sales tax.” Totally different. The IRS (federal government) oversees whether donors get a write-off on their income taxes by means of the Tax Determination approval process. States get to decide whether or not you, the nonprofit, has to pay sales tax at check-out when you are out purchasing goods for your programs, fundraising, etc. That’s a whole different registration process with the state’s department of revenue.
Once again, states rule here. Google “(your state’s name) sales tax exemption application” and you’ll get to the place on their department of revenue website which will direct you how to apply for sales tax exemption. It’s another form, another account, another bunch of things you need to fill out - and attach. In IL, all the documents listed above, as well as a few that I’d call marketing information need to be uploaded. They get to review all the information and decide whether or not you are exempt from paying sales tax. It is not automatic; the fact that you are a nonprofit registered with the Secretary of State AND the Attorney General does not automatically qualify you for sales tax exemption. So take care when filling out that form. You want to be accurate but also persuasive that you are indeed operating for the public good.
Know this: you cannot open a bank account for the organization without having most of these ready and at your fingertips in email-able PDF formats. Make sure you’ve got a clearly labeled folder in your cloud drive called “governance documents” or something like that so that these are readily available. In truth, the Tax Determination letter is the one you’re going to have to access most often when filing for grants or free space, etc. The Sales Tax Exemption letter, if you get it, you’ll want on your phone so that you can pull it up anytime you are out making purchases.
You know what? I might as well toss in the W-9. This one is super easy. It’s a form from the IRS onto which you write your business name, address and EIN. Then you, or another officer, signs and dates it. Sometimes people/businesses with whom you do business will want this as it is proof for them that you are a legitimate business with an EIN. It’s good practice to collect the W-9 from each vendor with whom YOU do business, especially if you aren’t sure if they are an individual or a business. if they give you a W-9 and mark that they a re an individual, then you’ll be responsible for sending them a 1099-NEC form at year-end.
That’s enough to get started with. Let’s not get into employees… but if you are hiring an employee, you are going to have to register that as well with the appropriate state agency. Lots of work, but once it’s done, it’s done. Then you just have to keep up with the annual filings…LOL more on that later.
ONE MORE THING: almost all of these distinct government agencies require that you set up an account on their system…and of course they don’t talk to each other. So make sure you have your password book and a pencil with you when you start down this road!
Hang in there!
Love, Mom
